MONTREAL - Azerbaijan is extending
its upstream oil and gas activities into Central
Asia, with two deals recently signed, the last
just a few days ago, to build oil refineries in
Tajikistan and Kyrgyzstan.

An agreement
was signed between the companies Azeraluminum and
Tajik Aluminum Co (TALCO) during a state visit to
Baku by Tajikistan's President Emomalii Rahmon
last week for Azeraluminum to construct an oil
refinery in his country. TALCO already manages a
plant in Tursunzade, 60 kilometers west of the
Tajikistan's capital, Dushanbe, that is reported
to have a production capacity of 517,000
tonnes/year, of which 99% is exported. In the
course of his visit to Azerbaijan, Rahmon was
invited to an industrial plant not far from Baku
that uses 50 tonnes

of aluminum per year in
the production of electric cables and other
power-sector equipment.

It is expected
that the oil refinery will be built in southern
Tajikistan. Its construction will follow upon a
feasibility study probably to be executed by the
US firm Foster Wheeler, with which the State Oil
Company of the Azerbaijan Republic (SOCAR) has
already established a Baku-based joint venture.

Earlier this year, SOCAR agreed to
construct a US$250 million oil refinery in
Kyrgyzstan with a capacity of 2 million tonnes per
year, equivalent to about 40,000 barrels per day.
This would reduce and possibly even eliminate
Kyrgyzstan's dependence on Russia, on which it
relies for imports of about 1.4 million tonnes per
year, representing three-quarters of its oil and
oil products consumption. When the deal
was announced a little over three months ago,
Azerbaijan's Industry and Energy Minister Natik
Aliev explained that construction would finish by
the end of 2013 or in early 2014. However, this
still depends on Kazakhstan agreeing a swap deal
with Azerbaijan.

The best arrangement
would be that Azerbaijan sends the given quantity
of oil across the Caspian Sea for import into
northwestern Kazakhstan, while Kazakhstan exports
the equivalent amount to Kyrgyzstan on its
southeastern border.

However, since
Kazakhstan can also finance the construction of
such a refinery in Kyrgyzstan independently, the
fate of this project depends upon the result of
negotiations between Kazakhstan and Kyrgyzstan.
Sources in Bishkek speak even of a volume of 3
million tonnes per year, which would be enough to
create potential exports to China and Uzbekistan
after satisfying domestic demand.

Azerbaijan has already extended its
activities and thus its geo-economic influence
westwards into Turkey and southeast Europe, where
it intends to sell gas from the offshore Shah
Deniz Two development now under way. In addition
to operating two refineries in Azerbaijan with a
capacity of 400,000 barrels per day, SOCAR has
expanded its downstream activities by acquiring
the Kulevi oil product terminal in Georgia and the
Petkim petrochemical plant in Turkey.

The
company also owns gas distribution systems in
Azerbaijan and Georgia as well as 200 retail
gasoline service stations in Azerbaijan, Georgia,
Ukraine and Romania. Just three weeks ago, after
an announcement late last year, the company
formally took over the Swiss-based operations of
Esso Schweiz in the retail service station sector.
Esso was a previous name for Exxon, now ExxonMobil
that survived among some of its overseas
affiliates. SOCAR will also provide products to
the aviation sector and tank trucks. It has plans
to expand to a total of 500 service stations, in
all countries combined, by 2015.

Having
thus reached already westwards, now Azerbaijan and
SOCAR are extending their activities and influence
eastwards beyond the Caspian Sea basin proper, to
Kyrgyzstan and Tajikistan in southern and
southeastern Central Asia. The projects themselves
are quantitatively minor, as such things go, but
the countries involved are also relatively small;
and since they are near the collision points not
only of geological tectonic plates (producing the
Himalaya mountains) but also geopolitical tectonic
plates, the moves by Azerbaijan have a much larger
potential geo-economic significance.

That
is especially so because, combined with
initiatives from China, the given countries may be
in the process of extricating themselves from a
Russian sphere of influence inherited from the
Soviet, indeed pre-Soviet, era. Over the past
decade and half, China has become an extremely
important player in the economy of Kyrgyzstan,
through which it also penetrates the market for
(re-exported) consumer goods in Uzbekistan.

Last September, Dmitry Medvedev, then
president of Russia, promised to support
construction of Tajikistan's Rogun dam and
hydro-power project, four years after Russia
withdrew its technicians and cut off assistance.
However, sources at the Duma (the Russian
parliament) explained at the time that this offer
was conditioned upon Tajikistan remaining a loyal
member within a Russian sphere of influence. It
does not seem to have been followed up,
particularly since Vladimir Putin has now replaced
Medvedev in the office of president.

Consequently it is still more significant,
in conjunction with Azerbaijan's modest moves into
the region, that China is now promoting
construction of a gas pipeline from Turkmenistan
through northern Afghanistan and Tajikistan into
western China.

Tajikistan, for its part,
continues to promote the CASA1000 project to build
a transmission line to sell electricity produced
in Tajikistan to Pakistan via Afghanistan.

Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.